Blockware Customer Accuses Bitcoin Mining Firm of Fraud

Bitcoin mining equipment and hosting provider Blockware Solutions was accused by a customer in a lawsuit of breach of contract, negligence, deceptive trade practices and fraud.

The case, filed in U.S. federal court in the Northern District of Illinois on Dec. 17, centers around an allegation that Blockware sold Faes & Co. 50 mining rigs for $525,000. But, Faes said in the lawsuit, “Blockware did not actually own or operate a facility to host the miners and was not capable of doing so reliably.” Also, the facilities owned by third parties that Blockware could tap didn’t have reliable power, resulting in subpar service, according to the suit.

“As a result, Faes’ miners under Blockware’s management and control have experienced prolonged downtime and inoperability due to lack of power, resulting in significant loss of revenue,” Faes argued. Faes said it has suffered at least $250,000 of damages.

London-based Faes said it ordered the machines to be delivered and hosted in Blockware’s own facilities in January, when bitcoin mining was highly profitable amid a bull market. The rigs only came online in April, Faes said. The machines were running with 70% uptime on average as of October, as opposed to the advertised 100%, Faes said.

Operational issues, according to Faes, started as soon as the machines were online, which eventually become “nonoperational” in October. Prior to the machines going offline, Blockware was claiming 100% uptime on a 90-day status page, including for a facility in Pennsylvania, where Faes’ rigs were located, often not working, according to the lawsuit.

In response, Blockware CEO Mason Japp said:

“We disagree with all statements and claims made by Christan Faes. He attempted to coerce us to settle with him, and we believe we owe him $0. In fact, we will be countersuing him for defamation among other stipulations. We had a signed [nondisclosure agreement] on file. We have a very strong case, his filing has baseless/false claims and after filing he still offered to drop the case if we settled (once again coercion). We believe the main reason for his filing was the value of his rigs dropped in price and he has harassed us with personal threats weekly via text/other communications until filing this lawsuit. We are confident it will be tossed out from the court, we have honestly served this industry for over 5.5 years and this has been first filed lawsuit against us.”

Blockware CEO Mason Jappa

Blockware is at least the second retail-facing mining company to be accused of operational problems this year. In July, both the CEO and the chief financial officer of Compass Mining resigned following a series of “setbacks and disappointments,” such as delays in machine deployment deploying machines and several thousand rigs being stranded in Russia following sanctions on its hosting partner in that country.

Read more: After Countless Bungles, Compass Mining Tries to Change Course

Meanwhile, major industrial-scale miners such as Compute North and Core Scientific have found themselves in bankruptcy proceedings, squeezed between high energy prices and low bitcoin prices.